293

Notes

2 Spending by Issuer of Domestic Currency

1 . Thanks to Eric Tymoigne for providing the mathematical exposition.

3 The Domestic Monetary System: Banking and CentralBanking

1 . All of this is described in Scott Fullwiler’s paper in much greater detail (prob-ably way too much detail for the casual reader) here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1874795.

2 . The following discussion is adapted from Treasury Debt Operations – An Analysis Integrating Social Fabric Matrix and Social Accounting Matrix Methodologies, by Scott T. Fullwiler, September 2010 (edited April 2011), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1874795.

6 Modern Money Theory and Alternative Exchange RateRegimes

1 . Payback: Debt and the Shadow Side of Wealth , by Margaret Atwood (Toronto:House of Anansi Press, 2008).

2 . Coins, Bodies, Games, and Gold, by Leslie Kurke (Princeton, NJ: Princeton University Press, 1999), xxi, 385.

3 . I thank Chris Desan, David Fox, and other participants of a seminar at Cambridge University for the discussion I draw upon here. People might find this of interest: http://www.boston.com/bostonglobe/ideas/articles/2011/08/21/which_came_first_money_or_debt/.

10 Conclusions: Modern Money Theory for SovereignCurrencies

1 . Bezemer, D.J. (2009), “No One Saw This Coming”: Understanding FinancialCrisis Through Accounting Models. Unpublished. See also http://www.voxeu.org/article/no-one-saw-coming-or-did-they.

2 . For references to our early work, see: http://neweconomicperspectives.org/2012/07/nostradamus-and-the-euro.html; http://www.economonitor.com/lrwray/2012/07/24/who-first-warned-about-the-euro-the-wsj-weighs-in/; and here http://www.economonitor.com/lrwray/2011/11/16/euro-crisis-is-spreading-from-periphery-to-center-the-system-designed-to-fail-will-fail/.

3 . See here: http://neweconomicperspectives.org/2014/01/job-guarantee-2.html; here http://neweconomicperspectives.org/2014/01/dazed-confused-matt-ygle-

294 Notes

sias-job-guarantee.html; and here http://moslereconomics.com/2013/11/19/comments-on-bakerbernstein-book/.

4 . See here: http://www.economonitor.com/lrwray/2013/11/21/bow-down-to-the-bubble-larry-summerian-endorses-bubbleonian-madness-and-paul-krugman-embraces-the-hansenian-stagnation-thesis/.

5 . For much more, see a paper I wrote in 2007, http://www.levyinstitute.org/pubs/wp_488.pdf, as well as an earlier paper on secular stagnation that blamesdemand constraints, co-written with Marc-Andre Pigeon: http://www.levyin-stitute.org/pubs/wp269.pdf.

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301

Index

accounting, 9–23, 26–7, 35–41, 56, 60, 74–6, 83–7, 91–6, 106–17, 121–4, 213

of real values, 10, 13, 28–33, 59–62assets

as another party’s liabilities, 4, 6–7,9–13, 17–20, 29–34, 37–40, 71–8, 83–9, 91–6, 106, 114–16, 180, 276

financial, 9–14, 17–19, 31–4, 37–8, 59–61, 92–3, 100–1, 107, 110–16, 124, 135, 179–80, 204,211, 287

net financial, see net financialassets

nonfinancial, 10, 32–3, 38, see alsowealth, nonfinancial (real)

Australia, 133, 223, 235automatic stabilizers, 24, 202, 210

bankassets, 29–30, 32–3, 49, 55–60, 72–6,

81–7, 91–6, 99commercial, 75, 205demand deposits, 5, 9, 55–7,

59–61, 73–4, 78, 85, 88, 92, 106, 109–10, 113, 138–9, 208,276–80

lending, 6, 73–4, 76, 80–5, 90–1, 100, 107–8, 114–15, 138, 188,265, 280

liabilities, 5, 32, 72–9, 81–7, 97, 107–8, 112

reserves, 3–5, 8, 11, 49, 52, 56–7, 60–1, 71–7, 81–93, 95–101, 104, 106–23, 126–7, 132, 134,179–80, 182, 192, 199–201, 204–6, 208–11, 216, 254, 257,263–5, 280, 282, see also Federal Reserve System

time deposits, 73, 78borrowed reserves, 96Brazil, 259

budget, 2–3, 6, 8, 11, 13–18, 23–7, 35–6, 42–3, 55, 62–9, 92, 100–1, 103–12, 114–17, 121, 127, 129, 135–6, 144, 175–6, 178, 181–6, 188–90, 200–16, 220, 223, 243, 259, 262–3

business cycle, 186, 200, 212, 226, 283

Canada, 74, 108, 146capital, 68, 83–5, 124, 129, 155,

274–5, 281controls of, 214, 217–18, 225, 232,

244, 286–7, 290flows of, 129, 214, 232, 244, 274human, 31markets of, 136

cash, see currencycentral bank, 2–5, 11, 49, 54–7, 73–84,

86–91, 95–6, 99, 101–15, 123, 132, 134, 160, 177, 179–80, 190–1, 200–1, 257, 263–8, 274, 276–80, 289

China, 68, 119, 121–3, 136, 162, 172–3, 176, 191, 215–16, 272, 286–7

Confederacy, 260–1consumer price index, 225, 248consumption spending, 40, 224, 268,

284convertibility, see currencyCPI, see consumer price indexcredit, 19, 29, 55–61, 73–5, 77–81,

88, 91, 94, 96, 99, 102, 104,106–16, 123, 132–8, 176,199–209, 257, 263–5, 279–80

creditor, 9, 12, 78, 80–1, 83, 90, 148,157, 164, 167, 275, 277

currencycash, 6, 33, 45, 56, 59–61, 72–7,

80–8, 112, 117, 251–2, 257, 263convertibility, 5, 71–3, 7–9, 131,

134, 142, 158, 174, 179, 192,261, 286

302 Index

currency – continueddefined, 1–2domestic, 41–6, 51–6, 59, 72, 111,

116, 121–8, 131, 160–1, 161, 192, 217–18, 231, 244, 248, 261, 288

government, 5, 10–11, 49–50, 56, 76, 124, 139, 254

pyramiding, 5–6, 76–80, 134reasons for acceptance of, 48–51,

137–8, 148, 156sovereign, see sovereignty

current accountdeficit, 24, 26, 36–7, 67–8, 116, 119,

121–34, 144, 160, 172, 180–5, 190, 212–16, 286

surplus, 2, 117, 119, 122, 129–30, 144, 160, 173, 190, 212–15, 220

debt, see private sector, debt; public sector, debt

debt-to-GDP ratio, 68–70, 118, 131, 200

default, see public sector, defaultdeficit hysteria, 9, 23–4, 63, 67, 290deflation, 64, 130, 153–4, 159, 171,

190, 199, 223, 252–3, 267deposits, see bank, demand depositsdeveloping nations, 41–3, 52, 54,

124–5, 128, 133, 173, 217, 270, 288, 290

dissaving, 13, 21–2

ECB, see European Central Bankeconomic growth, 16, 26, 66,

161, 188, 240, 242, 257,282–3

employer of last resort (ELR), 218,221–47, 249, 267, see also jobguarantee

EMU, see European Monetary Unionendogenous money, see money,

endogeneity ofendogenous versus exogenous, 27,

89–90, 104–5Euro, 43, 55, 131–2, 136, 176–90,

272–6crisis in, 180–7

European Central Bank (ECB), 81,115, 132, 136, 177–82, 186–90, 263, 273–6

European Monetary Union, 41–2, 125,175, 177–83, 187–90, 232, 264, 272–6

see also EuroEuropean Union, 178, 189–90exchange rate policies

fixed regimes, 79, 89, 104, 128–31, 134, 158–62, 172–6, 191–2, 214, 256–8

floating regimes, 71, 103, 121, 123, 128–31, 141, 160–2, 172–6, 181, 188, 191–3, 199, 214, 217, 226, 243–6, 257–8, 286–9

“pegged,” 42, 48, 89, 105, 123, 127, 129–33, 136, 141, 158–62, 172–6, 179, 191–3, 213–14, 229–32, 256, 270, 286–8

exchange rates, 27, 61, 105, 127, 161, 173, 195, 232

Federal Reserve Systemcoordination with U.S. Treasury, 2,

90–8, 109, 182discount window, 75, 77, 82, 108,

115federal funds rate, 3, 74, 89–90,

107–8, 115, 208, 264reserve accounting, 99, 179, see also

accountingfiat money, see money, fiatfinance

functional finance, 199–202,214–18, 221–9, 243, 249, 267, 270

sound finance, 8, 200fiscal operations

the case of a non-sovereign currency, 134–6, 177–87, seealso Euro

the case of a sovereign currency, 103–34, 202

fiscal policy, 2, 102–5, 142–3, 177, 182–6, 188–90, 201, 213, 221, 243, 256–7, 262, 264, 273

flow of funds, 22, 39–40, 88

Index 303

flows, 9–40, 55–7, 65–70, 98–9, 129–30, 271, 287

foreign direct investment, 124, 128,134, 220

foreign sector, 13–14, 18–19, 27, 34, 38–42, 179

debt, 262“free” market, 196–7, 286full employment, 6, 27, 79, 89,

129–30, 144, 149, 188, 195, 199–204, 221–47, 267–70, 281–2, 288–90

see also employer of last resort; job guarantee

GDP, see gross domestic productGlobal Financial Crisis, 12, 23, 30,

34, 64, 79, 81, 83, 89, 98, 126, 175–83, 208, 213, 226, 251, 270–2, 283

Godley, Wynne, 1, 14–16, 35–6, 41, 271

gold, 45–50, 61–2, 74–5, 132, 141–2, 158–72, 206, 245, 248, 251–62, 268, 278, 286

gold standard, 158–60, 172, 192, 245, 255–7, 262

Goldilocks economy, 15, 34–40, 185,271

government“big,” 7, 128, 197, 200, 212, 244–5budget constraint, 103, 202–6,

217–18debt, 11–12, 62–3, 66, 68, 117–23,

132, 135–6, 172–92, 207–10, 216, 274

deficit, 8, 11–12, 16, 24, 27, 36–7, 52–3, 62, 66–7, 92–3, 99–101, 104, 109–22, 129, 184–5, 190, 200, 213–16, 245, 276

deficit as nondiscretionary, 23–8deficit spending, 13, 17, 20, 23,

34–8, 64–6, 92, 95–101, 106–7, 111–12, 118, 179, 207, 213, 216, 254

“small,” 198, 244, 246state and local, 36, 39, 147, 178,

251, 281–2surplus, 36, 64, 101, 107, 213

Greece, 52, 55, 62, 131, 136, 165, 167, 177–91, 273

ancient Greece and money, 167gross domestic product, 16, 19–20,

25–6, 37–40, 52–3, 63–4, 68–70, 173, 178, 180, 189, 210, 212, 218, 250, 281, 284

high powered money, 11, 75–6, 201,260, 263

see also currency, government; reserve currency

horizontalism, 89, 114households, 2–5, 10–41, 53, 78–9,

102–3, 122–5, 134, 186, 196, 200, 203, 208, 231, 236, 251

see also private sectorHungary, 174–6, 202hyperinflation, 163, 202–3, 208, 221,

244, 246, 248–63

imports, 23, 26–7, 36, 40, 42, 67–8, 123–33, 143, 154, 159, 191–5, 215–18, 224–5, 229–31, 244, 261–2, 286–9

income, 8, 10, 13–28, 34, 37–40, 56, 58, 64–6, 84–5, 106–20, 135, 139, 142–56, 175–6, 187, 195–6, 199, 203, 211–30, 236, 239, 241–2, 265–6, 281, 284–5, 291

inflation, 2, 34, 53–4, 64–7, 73–4, 88, 104–5, 116, 127, 138–43, 153, 160, 163, 168, 171–2, 183,187, 191–5, 199–210, 217–25, 242–70, 288–91

interest rate target, 3, 73, 89, 93, 97–8,104–5, 109, 113–15, 175, 189, 199–200, 260, 263–7

interest rateseffects of government deficit on,

106–11, 215exogenous, 89–90, 104–5

inventories, 19–20, 31investment, 12, 19–20, 23, 27, 39–40,

67, 80, 104, 106, 124–8, 134, 155, 157, 186, 212, 218, 220, 228, 230, 252, 281–4, 290

304 Index

IOUs, 4–7, 9–13, 29–30, 37–8, 42, 48–50, 53, 55–6, 59–61, 64, 71–85, 97, 101, 106, 115, 117, 124, 127–31, 134, 138–40, 148, 161–5, 169–75, 179, 186, 199, 201, 203, 208–11, 255–63, 277–80

issuer of currency, 7, 9, 36, 39, 41–70,80, 103–4, 106, 128, 135, 138–9, 168, 174, 177–9, 190, 203, 208, 213, 266, 275–80, 287, 290

Jefes program, 226, 231–3, 236–7job guarantee, 133, 218, 221, 227,

239, 245–6, 270, 281, 284–5

Keynes, J.M., 1, 23, 71, 110, 112, 163, 165, 234, 242, 248–51, 261, 277–8, 282

lender of last resort, 73, 76, 81–2, 179,221

see also Federal Reserve SystemLerner, Abba, 199–204, 211, 214, 217,

221, 243, 249, 267liabilities

financial, 9–12, 17, 31–2, 77, 180as government (public sector) debt,

11–12, 78–9as money, 41–5, 55–9, 71–81pyramid of, 76–81settlement of, 80–1, 83, 85, 99, 138,

152, 167see also assets, as another party’s

liabilities; payments systemliquidity, 80–5, 110, 115, 133, 252,

289

macroeconomic accounting, 9–40macroeconomics, 27, 145, 197, 234medium of exchange, 44–5, 58, 156,

163, 169Mesopotamia, 162–4metalism, 162–72, 255Minsky, Hyman, 6, 135, 144, 149,

155, 212, 236, 242–3, 271, 279, 281

Mitchell, Bill, 175–6, 223, 235, 261

modern money theory (MMT), 1–8, 12–15, 34, 36, 28, 41, 48, 66, 89, 97, 128, 131, 137–49, 164, 167, 173, 176–9, 186, 189, 198–9, 22, 244–8, 253–5, 259–60, 266–78, 286–91

monetarist, 88, 253–5, 260, 262–4,268

monetary economy, 246monetary policy, 2–4, 93, 98, 103,

105, 114, 127, 161, 177, 188, 199, 200–1, 221, 248, 264, 266–7, 276, 282, 286

monetary sovereignty, 41–5, 103–11,139

moneycommodity, 158–72, 245creation of by banks, 5–7, 71–102,

201, 211as credit, see creditas debt, see liabilities, as moneydefined, 1–2endogeneity of, see horizontalismfiat, 48, 163, 246, 251, 255, 261–2nature of, 44, 269–91origin of, 148–9supply of, 89, 114, 172, 201, 205,

253–4, 263, 268money of account, 1, 11, 29, 41–51,

55–9, 71,74, 77, 97, 126, 149, 163–4, 168, 248, 277, 279

money “things” (tokens) 7, 20, 44–5,58, 75–6, 83–4, 153, 162, 165–6, 170, 277

Mosler, Warren, 138, 148, 174, 250,266

net financial assets, 10–14, 17,19, 60–1, 92, 101, 107, 111, 179–80, 211, 214

accumulation of, 10, 12two sector model

private sector net financial assets equal government liabilities, 15–23

nominalism, 162–72, 255–6

paradox of thrift, 23, 27–8payments system, 102, 109

Index 305

“PIIGs,” 62, 131, 180, 185–7, 275policy space, 42, 128–31, 135, 161–2,

172–6, 188–93, 199, 201, 214,217–18, 244, 256–7, 265, 270,286

Ponzi finance, 135–6price stability, 27, 161, 199, 221–47,

248–9, 267, 270, 291private sector

debt, 35–6, 61, 186deficit, 36, 66, 183, 185, 213, 275surplus, 24, 37, 121, 144, 184,

216profits, 12, 20, 30, 39–40, 67, 73–4,

125, 133, 151, 154–5, 203, 209, 218–19, 246, 265, 272

public purpose, 6–7, 92, 144, 147–50, 156, 175, 195–200, 270, 292

public sectordebt, see government, debtdefault, 50, 68, 72, 116, 126–7,

131–3, 162–3, 172–82, 186–92,245, 257–8, 263, 271, 286, 288,290

deficit, see government, deficitsurplus, see also government,

surplus

quantitative easing, 74, 89–90, 98, 100, 104, 107, 110, 115, 204,208–9, 248, 254, 263–6

recession, 25, 34–6, 104, 141, 153, 175, 186, 201–2, 211, 223, 226,265–6, 273, 283

Great Recession of 2007, 23–6, 34–5, 283

reserve currency, 68, 124, 128, 173, 214–16, 287, 292

“rest of world”, see foreign sector

saving, 11, 13, 15–28, 37–40, 43, 56,59, 63–7, 73, 81, 83–4, 104,106, 109–12, 116–19, 131, 136,183, 212, 215–16, 265, 276

net, 40, 43, 111–12, 117, 131sectoral balances, 12, 15–28, 34–41,

121, 183–5, 190, 212, 215behavior of, 15–20

causation of, 15–23deficits equal surpluses, 15–28three sector model, 11–18, 23, 36,

110two sector model, 11, 16–18, 23,

64, 213settlement, interbank, 83–9

see also payments systemsovereignty

currency, 7, 36, 39–45, 52, 59, 67, 103–4, 128–35, 140–1, 145, 156, 158, 174, 176, 179–82, 186–91, 203, 214, 217, 243–4, 266–70, 273, 275, 292

defined, 43government, 2–8, 17, 39, 43–55,

66–7, 79–80, 101, 105–6, 110, 123, 126, 128, 132, 135–7, 141–2, 148, 173, 176, 182, 193–6, 201–6, 214, 220, 231, 244–5, 258, 266–7, 270, 275–6, 286

spending, 4–28, 34–9, 41–70, 91–102, see also deficit spending

stock-flow consistency, seemacroeconomic accounting

stocks, 9–28, 55–7, 105, 154, 271real versus nominal, 28–34, 59–62

sustainability conditions, 62–70of current account ratios, 67–8of government deficits, 62–70, 200,

290of government that borrows in

foreign currency, 125, 190

taxes, 137–57income, 142, 144, 151–6, 211, 259not needed to finance government,

137–41, 142, 199–206payroll tax, 151–4, 211, 291stabilizing aggregate demand,

141–5, 199–206, see alsofinance, functional finance

taxes-drive-money, 48–51, 72, 92, 137, 139, 141–50, 156, 162, 220, 260, 276–8

transfer payments, 24–5, 40, 106,259

306 Index

unemployment, 6, 34, 148–9, 159,186, 199, 201–4, 210–17, 221–47, 249, 257, 267, 272, 281, 283–6, 290

unit of account, see money of accountU.S. Treasury, 2–4, 8, 43–6, 49–50,

56–7, 60, 75–6, 103–16, 182, 187, 205–11, 272–3, 277, 291

bonds (securities) of, 3–4, 8, 61,99–102, 107, 114, 119, 146, 208, 257, 280

debt operations, 98–102, 105, 114technical coordination with

the Federal Reserve System, see Federal Reserve System, coordination with U.S. Treasury

user of currency, 39, 177–8, 189, 213,218

wages, 20, 26–7, 37–8, 42, 56–8,130, 133, 146, 148–51,155, 172–3, 183, 187,194–5, 203–4, 219,222–34, 239–53, 259,268, 281–6

wealthfinancial

inside financial wealth, 13, 33net financial wealth, 9–18, 30,

53, 61nonfinancial (real), 10, 29–30, 61“outside,” 10–13, 18, 34

Weimar Republic, 163, 202, 253, 258,261

Zimbabwe, 55, 163, 202, 244, 253, 255, 261–2, 290